The supply of leading stablecoins USDT and USDC grew by $10 billion in the past 30 days, twice the inflows to bitcoin ETFs during the same time, 10x Research noted.
Stablecoins are tokens pegged predominantly to the U.S. dollar, and are widely used as a bridge between traditional currencies to digital assets and liquidity for trading.
Stablecoins might be a better signal for crypto demand than bitcoin ETF inflows, 10x Research noted.

Crypto market watchers this year have been fixated on demand for spot bitcoin [BTC] exchange-traded funds to gauge the direction for digital asset prices.

Watching the stablecoin supply, however, could be a more useful indicator for crypto demand, and its rapid expansion suggests prices will go higher, 10x Research said in a Monday report.

"We suggest paying less attention to the bitcoin ETF flows," Markus Thielen, founder of 10x Research, said in the report. "Stablecoin issuers are the new sheriff in town, driving this market higher."

Stablecoins – digital assets with a fixed price, predominantly pegged to one U.S. dollar – are a key piece of infrastructure bridging traditional (fiat) currencies with the digital asset world and providing liquidity for trading. Changes in their supply provides an important clue about the health of the crypto market, as market participants create (mint) stablecoins by depositing fiat money, the 10x report said.

The supply of Tether's USDT and Circle's USDC – the two largest stablecoins – expanded by nearly $10 billion combined over the past 30 days, 10x Research pointed out. Meanwhile, the supply of MakerDAO's DAI and Hong Kong-based First Digital's FDUSD, the third and fourth largest stablecoins, also expanded by 5%-10% in this period, CoinGecko data shows.

USDT alone grew by $2.4 billion in a week, one of the highest 7-day readings during this bull market, the report noted.

"Fiat money is being moved into crypto at an accelerated pace," Thielen said.

Meanwhile, U.S.-based spot bitcoin ETFs attracted $5 billion of net inflows over the past 30 days, the report added.

"The minting from stablecoins is twice as large and might be long-only exposure, contrary to the ETFs," Thielen said.

This is because ETF inflows might have been skewed by savvy market participants harvesting a yield from elevated futures funding rates with a so-called "carry trade."

Funding rates – payments to traders based on the price difference between futures contracts and spot markets – have been near record-highs, meaning that futures traders betting on higher prices (longs) pay to those holding short positions benefitting from price declines. This offers an arbitrage opportunity known as a carry trade, with savvy investors buying spot BTC or shares of one of the spot-based ETFs and selling equal size of BTC futures to maintain a neutral position and safely pocketing the price difference as a yield.

Notably, hedge funds held record amounts of BTC futures short positions on the regulated Chicago Mercantile Exchange, which could be partly because of the high demand for the carry trade, 10x noted in another report last week.

Markets Stablecoins 10x research

Krisztian Sandor

Krisztian Sandor recently graduated from NYU's business and economic reporter program as a Fulbright fellow and worked with Reuters and Forbes previously. Originally from Budapest, Hungary, he is now based in New York. He holds BTC and ETH.